Kathmandu, September 21
The government is preparing to scrap the value-added tax (VAT) it has levied on electricity tariffs since the current fiscal year. The move comes just two months after VAT took effect at 5 percent for household consumers and 13 percent for industrial and other non-household consumers.
Energy, Water Resources and Irrigation Minister Biraj Bhakta Shrestha and Finance Minister Dr Swarnim Wagle reached an agreement in principle on Sunday evening to remove VAT on electricity, according to a source at the Ministry of Energy.
The source said the two ministries reached the understanding after the prime minister also appeared positive about scrapping the tax. The process will move ahead once the Cabinet makes a decision at the upcoming meeting.
The government introduced VAT on electricity services through the budget for the current fiscal year 2026/27. Under the provision, household consumers using more than 50 units a month pay 5 percent VAT, while all other consumers pay 13 percent.
VAT that was supposed to apply from July was deducted earlier, even in the June bills. The Nepal Electricity Authority then sought clarification from the Inland Revenue Department, which replied that the tax would apply only from July. The authority updated its billing system accordingly.
The levy, however, had faced opposition, with critics saying it would raise costs for industries and businesses as well as household consumers. Industrialists in particular had argued that 13 percent VAT on electricity would increase production costs and push up the prices of goods and services.
According to the Energy Ministry source, once the decision is implemented, the VAT collected on electricity tariffs since July will also be reconciled. The plan is to adjust the amount collected earlier in upcoming electricity bills. After the Cabinet makes a formal decision, the arrangement of no VAT on electricity tariffs will come back into effect.
